To be more specific;
James Kovacs and Virtual PC Guy provide the details per server, aggregated it becomes:
Ignore any compatibility warnings, just proceed installation and apply SP2 after installing. During the install you also see a warning about a compatibility issue for Visual Studio (SQL Server Business Intelligence Development Studio is based on the Visual Studio 2005 Development Environment), you can solve this by installing the Visual Studio 2005 SP1 followed by the Update for Vista.
Now you may have heard about the re-release of SP2, but the only one you can download from Microsoft is the fixed one (available since March 5th 2007). If you're not sure, read KB-article 933508 how to verify.
Start the installation of Virtual Server by right-clicking the setup-exe and running it as administrator. If you don't, it pretends IIS is missing (also, it won't detect the IIS portnumber).